Credit cards are an important part of personal finance. We all use them to pay for items we want and need, and the convenience of credit is good for the economy. But in recent years the easy availability of credit cards, combined with changes in our banking and finance laws that give credit card companies more power over consumers, has led to unfair and abusive situations.
No one excuses a deadbeat, but unsuspecting consumers who pay their bills on time are often victimized by suddenly escalating and exorbitant interest charges. Credit card companies also encourage debt by issuing credit cards to young consumers in order to lure them into long-term obligations. That is why I introduced H.R. 5383, the Credit Card Accountability, Responsibility and Disclosure Act, to add some common-sense rules to the law governing issuance of credit cards and credit card interest rates.
Overall, during the last decade, total credit-card debt rose by about 70 percent, which means that more Americans are indebted to credit cards than ever before. The Federal Reserve recently reported that from late 2001 to late 2004, inflation-adjusted household debt increased by more than 26 percent. During the same period, when incomes remained about the same, the balance that families owed on a card rose nearly 16 percent, to $5,100.
I have heard from many people who say their lives are made more difficult because of credit card debts, and national polls show that young people are more worried about going deeply into debt than about being victimized in a terrorist attack.
We have all heard the argument that the main reasons for the increase in debt are personal recklessness and erosion of financial responsibility. Those were the main arguments for the bankruptcy bill Congress passed last year. But Congress needs to do more to promote responsibility by those who provide the credit – and one place to start is with credit card companies.
For example, consider interest rates. Credit is not free and it should not be, but consumers should be treated fairly. We have all seen print ads and commercials that advertise low interest rates, but they don’t make it clear that these rates can change without warning, and that higher rates can apply even if a consumer receives a warning and then acts to cancel a card.
My bill requires that a credit card company provide advance notice of increases unless they result from the expiration of an introductory rate for new accounts or a change in another rate to which the credit card rate is indexed. It also would require notice of the right to avoid paying the higher rate by cancelling the card before the new rate takes effect. And it requires that if a consumer cancels the card in time, any remaining amounts owed will be subject to the terms and conditions that applied at the time of cancellation.
The bill requires that card holders be more fully informed about the relationship between the monthly minimum payments and the full amounts owed on their cards and what monthly payment would be required to eliminate the outstanding balance in 36 months if they do not use their cards to make additional purchases. Further, the bill would require that card holders be given clear notice of any fees, other charges, or increases in interest rates that would result from their making late payments.
For payments made by mail, card holders would have to be given a reasonable time for their payments to be received and would have be to told the date on which a mailed payment must be postmarked in order to avoid fees, charges, or increased interest rates. And if a card issuer accepts payments made in person, a payment made at least one day before the due date would not result in a late-payment penalties.
The bill also would bar charging fees or other penalties because a card holder pays more than the monthly minimum or pays the balance in full. It would bar credit issuers from imposing a fee if the cardholder makes a purchase that puts them over the total credit limit and the card issuer has authorized that charge either in advance or at the time of a purchase.
The bill also would limit issuance of credit cards to people under the age of 18. To obtain a credit card, people under 18 would need either: the signature of a parent or guardian willing to take responsibility for the applicant’s debts; proof that the young person has some other means of repaying any debt; or proof that the young person has completed a credit counseling course by a qualified nonprofit budget and credit counseling agency.
And, finally, the bill increases the amounts that card issuers might have to pay to people who are injured by violations of the rules.
In short, the bill takes some simple, common-sense steps to stop abusive practices, educate cardholders, and stiffen the penalties for violations. With so many American families using and depending upon credit, I believe the rules that govern credit cards should reward responsible behavior by consumers and require the same from credit card issuers.